Mando: Riding out the Slow Times

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The author is an analyst of Shinhan Investment Corp. He can be reached at yjjung86@shinhan.com. — Ed.

4Q21 OP likely short of consensus at KRW51.1bn (-36.4%YoY)

Mando is expected to have recorded operating profit of KRW51.1bn (-36.4%YoY) on sales of KRW1.6tr (-8.3% YoY) for 4Q21, missing the consensus estimate (KRW85bn) by 40%. The drop in sales volume was likely smaller than initially feared, with the company’s key clients (Hyundai Motor, Kia, and North American EV maker) faring well despite prolonged chip shortages. However, operating margin should have declined for 4Q21 on the reflection of the rise in material costs (steel, copper, aluminum, etc.) as in 3Q21. The ADAS (advanced driver assistance system) business is forecast to have posted sales of KRW210.7bn (-5.0% YoY), accounting for 13.2% of total sales. The YoY downtrend in ADAS sales should have continued for two consecutive quarters due to heavy reliance on supply for clients’ domestic models.

Expectations high for clientele/portfolio expansion in 2022

We believe an upturn in Mando shares in 2022 will hinge on: 1) recovery in sales volume on easing of chip shortages; and 2) resumption of growth in the ADAS business. As for sales volume, slow recovery at key clients should be offset by addition of new clients (EV maker, etc.). For full-year 2022, sales are forecast to increase 9.8% YoY to KRW6.6tr.

We also focus on the ADAS business, which drove margin improvement in 2018-2019. The business needs to add new clients and launch new high-end products to return to the growth track. We expect to see new sales from orders secured from a US EV startup and a China-based automaker (to be used for its EV brand). Mando is also set to supply next-generation ADAS products and domain control unit (DCU) to existing clients. Total ADAS sales should reach KRW925bn (+22.7% YoY) in 2022, recovering from the slump in 2021.

Retain BUY for a target price of KRW85,000

We retain our BUY rating on Mando for a target price of KRW85,000. The annual Consumer Electronics Show (CES) held last week reignited market expectations for mobility services and autonomous driving technologies. Mando is one of the few ADAS solution providers in Korea and has made considerable financial investments in mobility services. We thus believe the company deserves reassessment of its self-driving/mobility capabilities.

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